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Private Lending (5) – Key Points of A Property
Continuing from the last post, after reviewing the borrower, let’s talk about the property itself. Property underwriting mainly involves examining the appraisal report and the property title.
– Is the appraisal company licensed and accredited?
– There’s a list circulating within the industry known as the “bank approved appraisal company” list. If the appraisal company isn’t on this list, we generally don’t accept it and instead request a report from a designated appraisal company. In major cities, there are only a few top-tier appraisal companies used by banks, making it easy to remember. However, in more remote areas, it’s safer to use local appraisal companies listed on this list.
– If the appraisal report is issued by a loan broker or real estate brokerage, don’t use it.
– If the loan is for purchasing property rather than borrowing, the appraisal report (including those accepted by banks) usually only provides a conclusion supporting the purchase price, without explicitly valuing the market value. This is normal.
– Appraisal Date: Generally, don’t accept an appraisal report that is more than 30 days old, especially in today’s volatile market. This indicates that this deal has been on the market for a long time. Additionally, if the market is particularly volatile, it’s advisable to request an updated appraisal report—the newer, the better, as even 30 days might be too long.
– DOM (Days on Market) is a crucial indicator. It shows how long similar properties in the area typically take to sell, indicating liquidity. In a strong market, we usually only accept properties with a DOM of less than 30 days. In the current market, even 30 days is too long. The lower the DOM, the quicker the funds can be recovered, especially in the case of power of sale if defaults happen.
– Any issues requiring immediate repairs. These issues typically involve cracks in the house foundation or signs of indoor leakage. This suggests that a portion of the money might need to be reserved for repairs, which could affect the property’s debt ratio and risk.
– Authorization for the appraisal report: While lending, don’t forget to reauthorize the appraisal report to the lenders. This requires the appraisal company to change the authorized person to the lender’s name. This ensures legal effect in court proceedings in the future if it happens.
– Pay close attention to the photos. Photos often reflect the true status of the property owner. A cluttered house might indicate difficulties in repayment behavior, while a clean and tidy condition might correspond to good repayment behavior and a proud property owner.
– Property community: Generally, avoid touching three types of communities: those occupied by gangs, those with high crime rates, and those overly dependent on a single industry, such as automotive manufacturing. These types of communities exist everywhere; just check and you’ll know.